BADM 4970 CH. 4-6 EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026

BADM 4970 CH. 4-6 EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026 What determines a company's profitability - Answers 1. The amount of value customers place on the company's goods/services 2. The company's cost of production Consumer Surplus - Answers The price a company charges for a good/service is typically less than the value placed on that good/service by the average customer. This is so because the average customer captures some of that value in the form of a consumer surplus. V-P Customer's Reservation Price - Answers The price that reflects that individual's assessment of the value of a product. P-C - Answers Company's profit margin V-C - Answers Value created by the company How do you measure profitability as measured by return on invested capital? - Answers P-C/capital Example of Value Creation (compare two companies) - Answers Toyota and GM According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry? - Answers Low Cost and Differentiation According to Michael Porter, low cost and differentiation are the two basic strategies for what? - Answers For creating value and attaining a competitive advantage in an industry Four factors that build competitive advantage - Answers Efficiency Quality Innovation Customer responsiveness All interrelated Efficiency formula - Answers outputs/inputs Employee Productivity - Answers output per employee Capital productivity - Answers output per unit of invested capital When customers are evaluating the quality of a product, they commonly measure against two kinds of attributes - Answers Quality as excellence and quality as reliability The impact of high product quality on competitive advantage is twofold - Answers high quality products increase the value the products provide to customers -- charg a higher price reliable so there's greater efficiency and lower unit costs (less time spent fixing it) Innovation - Answers Creation of new products or processes Product innovation - Answers Development of products that are new to the world or have attributes superior to those of existing products Process innovation - Answers The development of a new process for producing products and delivering them to customers Customer response time - Answers The time it takes for a good to be delivered or a service to be performed Value chain - Answers Refers to the idea that a company is a chain of activities for transforming inputs into outputs that customers value Primary activities of the value chain - Answers 1. R&D 2. Production 3. Marketing & Sales 4. Customer service Support activities - Answers Activities of the value chain that provide inputs that allow the primary activities to take place Support activities are broken down into functions - Answers 1. Materials management (logistics) 2. HR 3. IS 4. Company infrastrcture Ways to make production more efficient - Answers Spread fixed costs over a large production volume (e.g. microsoft) Produce large volumes (specialization - allows employees to become very skilled in one particular task/process) e.g. Ford Model T Flexible manufacturing technology - lean production - Answers A range of mfg technologies designed to reduce setup times for complex equipment, increase the use of individual machines through better scheduling, and improve QC at all stages of the mfg process AKA lean production Flexible manufacturing technology enables _____ _________________ - Answers Mass customization Mass customization - Answers Ability of companies to use flexible manufacturing technology to reconcile 2 goals that were once thought to be incompatible: low cost and differentiation through product customization Marketing strategy - Answers the position that a company takes with regard to pricing, promotion, advertising, product design, and distribution Customer defection rates - Answers percentage of a company's customers who defect every year to competitors. What are customer defection rates determined by? - Answers Customer loyalty How do you reduce customer defection rates? - Answers Marketing managers take steps to build brand loyalty, and to make it more expensive for customers to defect How much do transportation and materials cost for a typical manufacturing company? - Answers 50-70% of its revenues Distinctive Competency - Answers Unique firm-specific strength that allows a company to better differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. Business-level strategy - Answers plan of action that strategic managers adopt to use a company's resources and distinctive competencies to gain a competitive advantage over its rials in a market or industry. Customer needs - Answers Desires/wants/cravings that can be satisfied by means of the characteristics of a product (a good/service) Product differentiation - Answers process of creating a competitive advantage by designing products - goods/services - to satisfy customer needs. Three basic generic competitive approaches - Answers 1. Cost leadership 2. Differentiation 3. Focus Why are the competitive approaches considered "generic" - Answers Because all businesses/industriescan pursue them, regardless of whether they are manufacturing/service/nonprofit enterprises What are the 3 decisions that are the basis of the choice of a business-level strategy? - Answers 1. Customer needs/product differentiation 2. Customer groups and market segmentation 3. Distinctive competencies Two advantages to the cost leadership strategy - Answers 1. Lower costs = more profitable than its closest competitors 2. If rivalry increases and companies start to compete on price, cost leader will be able to withstand competition better than other companies because of its lower costs Strategies of the cost leader - Answers low to moderate level of differentiation (differentiation is expensive) Doesn't focus on a market segment. Appeals to the general/average customer Differentiation strategy - Answers Achieve a competitive advantage by creating a product that is perceived by customers to be unique in some important way Advantages of differentiation strategy - Answers Company can charge a premium price Can outperform its competitors and gain above-average profits Product differentiation can be achieved in 3 principal ways - Answers Quality Innovation Responsiveness to customers Broad differentiator - Answers A company the offers a product designed for each market niche Focus Strategy - Answers A strategy of serving the needs of one or a few customer groups/segments A company concentrates on small-volume custom products, for which it has a cost advantage, and leaves the large-volume standardized market to the cost leader What does it mean when an industry is considered "fragmented" - Answers It's composed of many